Mon - Fri 10:00-18:00
Johannesburg, Fourways

TradeTalks: Cloud Computing Index Outperforms in Midst of COVID-19 Pandemic

During TradeTalks this week, Ben Jones, Product Development Specialist with the Index Research team at Nasdaq, joins Jill Malandrino, Global Markets Reporter at Nasdaq, to discuss how the cloud computing index is outperforming in the midst of the COVID-19 pandemic. Below is a transcript of the conversation, which has been lightly edited for clarity.

Jill: Welcome to Nasdaq #TradeTalks, I’m Jill Malandrino, Global Markets Reporter at Nasdaq. Joining me is Ben Jones, Product Development Specialist with the index research team at Nasdaq to discuss the EMCLOUD index, and how it capitalizes on cloud computing trends. Ben, it’s great to have you with us as always. Tell us a bit about the cloud index.       

Ben: Thanks for having me. This index is called the BVP NASDAQ Emerging Cloud Index. It tracks an important and innovative theme or sector within today’s age. What was once a buzzword a couple of years ago, “cloud computing – let’s send it to the cloud!” is now part of everyday life. When you think about this interview, it wouldn’t be possible without cloud computing. Then, when you think about what’s happening today with the COVID-19 pandemic, you realize the future of work is going to change. The future of your everyday life has changed. And cloud computing is making it easier for people to work from home, access data, download videos, etc. All of that is powered by the cloud, so this index tracks this important theme. Cloud computing is really simple: it’s basically the delivery of computing services via the cloud, the internet, so whether you’re accessing storage, or different databases, or analytics, or intelligence software, it’s all supported via the cloud, and this is what the BVP NASDAQ Emerging Cloud Index tracks.  

Jill: What are the holdings in EMCLOUD; what kind of stocks, can we expect to find there?         

Ben: It’s important to have a framework for the methodology behind it. The index is about 50 publicly listed companies, and they derive the majority of their sales from cloud computing products and services. That’s determined by Bessemer Venture Partners (BVP), and what they look for [are] two things: (1) do these companies provide customers with [with services via a cloud] delivery model (e.g., something that’s hosted on a remote and multi-tenant server infrastructure, or accessed through a web browser or mobile device, like an iPhone or something like that). And (2), do they provide

through a cloud-based economic model, e.g., subscription-based, volume-based, or transaction-based.  

Then there’s another important screen, and this really allows the index to provide a way to track these emerging cloud companies. So for new companies to join the index, the methodology looks for revenue growth for 15% or more over the past two years. And then we have to see 7% growth in revenue [in at least one of the last two fiscal years] for existing companies in the index. Then there’s some other filters – e.g., needs to be listed on Nasdaq, NYSE or CBOE, and there are some market cap filters. Then the index is equal-weighted, which gives you an index that is predominantly in the technology and industrials sectors, and one [index] that is oriented to smaller cap companies or smaller sized companies. So it is not going to be dominated by your mega large-cap names or the household names.

When we look at the index today, the average new market cap names around $23.8 billion, and the market cap ranges from about $185 billion, which is the behemoth of Adobe, to [a low of] about $736 million in market cap. If you just look at the screen, you can see an example of the top 10 Holdings. You see some common names like Zoom Video, but then you see some other names that are behind the scenes – think about DocuSign, Twilio and Fastly. So this is what the index looks like for the top 10. It’s an index that tracks the emerging cloud companies, [and] right now, the index is mostly mid-cap oriented, which makes it different than some of the other indexes that are out there that track this space as well as provide exposure to the technology sector.

Jill: Let’s talk about that and wrap up with the performance of EMCLOUD relative to say, the Nasdaq-100 Index or another technology-driven index. How does it look relative to the other ones?

Ben: I want to focus on how this index has performed over time, especially off that March [2020] low. It’s really been since that point that it has responded quite profoundly off of that market low, which is a sign that the market is favoring these cloud companies. Year to date, the index is up about 33.7%, and since the March low, it’s up nearly 75% [3/16/20- 5/22/20: 74.7%].   

So it has performed well, even though it did experience a significant move to the downside, the key is that how did it and respond? Right now, this index is up over 30% year to date, compared to the technology benchmark index, which is up only about 7%. Over the past 12 months, it’s outperforming the technology benchmark index, the Nasdaq Composite, and the Nasdaq-100, which is what this chart reflects. But the key here, at least in my opinion, is looking at how it has performed, is that it has and responded off of that March low and it’s outperforming off that low versus these other important benchmarks over the last month or two, as well as the last 12 months.

Investors who want to access this index can access it through two ETFs that track it: the ticker is WCLD for both of them. It’s Wisdom Tree Cloud Computing Fund based in the US, and the Wisdom Tree Cloud Computing ETF WCLD, based in London.       

Nasdaq® is a registered trademark of Nasdaq, Inc. The information contained above is provided for informational and educational purposes only, and nothing contained herein should be construed as investment advice, either on behalf of a particular security or an overall investment strategy. Neither Nasdaq, Inc. nor any of its affiliates makes any recommendation to buy or sell any security or any representation about the financial condition of any company. Statements regarding Nasdaq-listed companies or Nasdaq proprietary indexes are not guarantees of future performance. Actual results may differ materially from those expressed or implied. Past performance is not indicative of future results. Investors should undertake their own due diligence and carefully evaluate companies before investing. ADVICE FROM A SECURITIES PROFESSIONAL IS STRONGLY ADVISED.

© 2020. Nasdaq, Inc. All Rights Reserved.

Leave a Reply

Select your currency
ZAR South African rand